CASE – 03 – THE CRISIS OF WATER – ENVRONMENTAL ETHICS.

This case, explores some of the more recent developments in the world on corporate social
responsibility and business ethics. Water as an increasingly scarce and contested '"resource
has become an issue where businesses find themselves more and more confronted by new
expectations and demands from society. Whether on the supply side, as providers of drinking
water and sanitation or whether on the demand side, as users or marketers of water, private
corporations have become key players in addressing needs that sometimes extend
substantially beyond their initial economic interests.
Water has increasingly become a contentious political issue-and a hot issue for business ethics.
Water is considered a basic human need, and so access to clean water is typically considered
to be a fundamental human right. However, although it appears to be abundant, humans can
actually only use 1 % of global water resources for drinking. While most developed countries
have decent access, 18% of the world's population have no access to basic safe drinking water
and 40% have no access to basic sanitation. A person living in Sub – Saharan Africa has to get
by with between 10-20 litres of water per day-by comparison, the average Canadian uses more
than 300 litres of water a day. To meet the UN Millennium Development Goals, which aim to
achieve access to safe water for all by 2015, we would need to create access to safe water for
300,000 new people every day.
With an issue this. contentious, it is no surprise that water has also increasingly become an
ethical issue for business. Business is deeply involved in the world of water, either on the
supply side as a provider of safe drinking water and sanitation, or on the demand side as a
major user of water as a raw material, or as a product to sell.

Privatizing water utilities

On the supply side, we have seen a marked increase in privatization of water utilities over the
last 30 years. The global market here is dominated by two French MNCs, Suez and Vivendi,
and a handful of other players who have become increasingly involved in the water business
in developing countries. The privatization of water supply, however, has become an ever more
heated issue. There are, of course, often good grounds for privatization: municipal water
companies have often proved to be inefficient and overly bureaucratic, if not outright corrupt
and even failing, as has sometimes been the case in developing countries. Bringing in the
private sector, so the argument goes, can increase efficiency, improve service levels, and even
help to address _poor access to water in the developing world.

The reality, however, yields a rather mixed picture. While proponents such as Globalisation
Institute fellow, Misha Balen, argue that the majority of privatizations have actually improved
water provision, a number of high profiles, and rather spectacular, failures have made activists
and politicians more and more opposed to the idea. According to the critics, at the heart of the
problem with privatized water supply is the fact that private companies entering the market
for water only do so in the long run if they apply what is called in the industry 'full cost
recovery'. One case that hit the
headlines in the early 2000s is that of the South African township Ngwelezane in the state of
Kwazulu Natal. When the government started to charge full cost recovery for water (allegedly
to prepare the water supply system for sale to a private company), the mostly poor and disease-
stricken inhabitants of the township could not afford their water anymore. As a result, they
resorted to a nearby lake, which led to a cholera epidemic that killed 300 people.

Even more famous are the two so-called 'Water Wars' in Bolivia in 2000 and 2005. The World
Bank had given the country a loan for improving the water system and as in most contracts,
the Bank demanded privatization of the system (in 2002, more than four-fifths of World Bank
contracts required privatization). The system in Bolivia's capital La Paz was ultimately taken
over by a subsidiary of the US multinational Bechtel, which found it hard in the beginning to
recoup their investments because the system they inherited was in such a dismal state. Since
the World Bank contract ruled out government subsidies, the only way to 'full cost recovery'
were some changes in the pricing and in the law. Finally, not without some lobbying, Law
2029 was passed, which granted private water companies monopoly rights in the ridings they
operated in. This implied that people were no longer allowed to use water for free out of their
wells or even to collect rainwater. Law 2029 led to long and violent riots in La Paz and gave
rise to a political movement on the left, which culminated in the overthrow of the government
in 2006. The privatization of the water system was terminated and reversed in that same year.

But problems with privatized supply are not exclusive to the developing world. In 2006,
Thames Water, the private company that serves London aria the South East of England, was
fined for the second time for missing the government target for cutting down leakages in its
drinking-water supply network-still a whopping 894 million litres a day at the time. This did
not, however, prevent the company from declaring a 31% rise in pre-tax profits of £347
million, while customers saw prices rising by 20% from 2005 to 2009. In France, large water
companies have, over the last few years, faced multiple allegations and even some convictions
for bribery of municipal governmental officials, and similar cases of corruption are reported
from other European countries. In the US, the city of Atlanta stands as a salutary example of
some of the limitations of water privatization. Here, privatization in 1999 (to the French
company Suez) led to low service levels, exclusion of poor consumers, and higher prices so
that the system was ultimately put back into public management in 2003.

Serving an insatiable thirst

A slightly different set of issues enters the corporate agenda on the demand side of the story.
As with privatization, these issues are particularly acute in the developing world, where
Western MNCs can be seen as competing with local business and the indigenous population
for the use of often scarce water resources. The issue is particularly salient for industries with
high usage of water, such as mining and of course, the drinks industry. Perhaps the most well-
known and best-reported incident concerned Coca-Cola's bottling plant in Kerala in Southern
India. As one of the company's more recent expansions, Coca-Cola is estimated to have
invested over $1bn in its Indian business between 1993 and 2004, thus contributing roughly a
fifth of the entire foreign direct investment to the country. Against this backdrop, it came as
quite a surprise to the company when in 2004 a High Court in the southern province of Kerala
ordered the closure of a Coca-Cola bottling plant in the village of Palchimada. The ruling
followed three years of campaigning by local villagers, national NGOs, and research institutes,
displaying a truly multifaceted arsenal of campaign tactics, reaching from local
demonstrations, sit-ins at the plant gate, and human chains, to ten-day marches between
various Coke plants, nationwide 'Quit India' campaigns, and political lobbying (the Indian
parliament subsequently banned the company's products from its cafeteria).

The central issue of the campaign, at least initially, was the fact that since the Kerala plant
opened in 2000, groundwater levels had fallen by 25-40 feet, resulting in severe water
shortages for rural neighbours of the plant. Harvests allegedly fell by 80-90% and the
remaining water became undrinkable in a region where most people are extremely poor and
dependent on small-scale local agriculture. Coca-Cola, who extracted about 510,000 litres of
water per day from the groundwater around the plant, initially blamed the decline in water on
poor rainfalls in the region during the preceding years and dismissed the protest as 'anti-
capitalist'. Still though, the company set up a tanker service providing people around the plant
with a daily supply of water. The court, however, ruled that groundwater is a public good and
Coca-Cola, in the aftermath of the ruling, had to reorganize its water supply from other parts
of India into the plant. As of 2006, Coca-Cola has reduced its water use by 24% and installed
rainwater harvesting systems in 26 of their plants.

Ultimately, Coca-Cola became something of a leader in water management practices,

including the introduction of a far-reaching Global Water Stewardship Initiative. In India, this
entailed, amongst other things, a commitment to replace all groundwater used in its beverages
and their production by 2009. Globally, the firm struck a water conservation partnership with
the World Wide Fund for Nature (WWF), which in 2007 led to the firm's CEO announcing an
ambitious goal to return to communities and to nature an amount of water equivalent to what
they used in all of their beverages and their production. As the firm says, 'this means reducing
the amount of water used to produce our beverages, recycling water used for manufacturing
processes so it can be returned safely to the environment, and replenishing water in
communities and nature through locally relevant projects'. The latter included a $30m
'Replenish Africa Initiative' that aims at providing drinking water to the towns and villages
where the company has bottling plants.

Usually, Coca-Cola works in these projects in partnership with local and international NGOs,
community groups, and international aid agencies. Since 1997, the company has successfully
engaged in a number of projects in countries such as Angola, Ethiopia, Mozambique, Nigeria,
and Rwanda, and effectively brought water supply to many places where governments hitherto
had failed to deliver. Similar projects have been started by Nestle, the beer conglomerate
SABMiller, and a number of mining companies. The increasing involvement of business in
the management of global water resources has led the UN Global Compact (see Ethics in
Action 11.2) to set up a special forum called 'The CEO Water Mandate'. Here, CEOs of many
major companies, including those mentioned in this case, have committed themselves to
implement sustainable water management practices in their operations. The world of water
though remains an ambiguous terrain for companies. While implementing fairly wide-ranging
measures around the conservation and accessibility of water, even the best-managed
companies continue to demand ever more water as their markets grow. Moreover, beverage
companies have raised further criticism for their heavy investment in another-increasingly
contentious business, bottled water. For Nestle, for example, its ·main beverage business is in
bottled water, and the firm markets in more than 70 brands globally, including the iconic
Perrier and Vittel brands. The main ethical concerns faced by companies such as Nestle in the
marketing of bottled water centre around issues of wastefulness (it currently takes
approximately three litres of water to produce one litre of bottled- water), packaging, transport
costs, the exploitation of non-renewable aquifers (such as the water from the Fiji Islands), and,
more generally, the fact that in most developed countries, where bottled water is sold, tap water
is a perfectly healthy and adequate alternative.

Activists have long campaigned against the growth of the bottled water business, and some
governments have begun to act. For instance, in Canada, 12 municipalities, including the City
of Toronto, had initiated bans on bottled water on municipal premises by 2009. Nestle, which
has instituted a range of water conservation initiatives across its global businesses, nonetheless
reacted rather aggressively to the new hard-line direction of regulators. Not only did they hire
lobbyists to manipulate the municipal bans, but the firm also placed contentious
advertisements in the Canadian press which raised widespread allegations of greenwash.
Perhaps this was not so surprising given that among the claims panned by the critics was
Nestle's contention that 'bottled water is the most environmentally responsible consumer
product in the world'! Further embarrassments ensued for the company in 2008 when a Swiss
television station revealed that Nestle had hired a security firm to spy on the NGO ATTAC,
with a particular focus on a Brazilian activist who had targeted the company's bottled water
operations in Brazil.